EDHECinfra

Based on preferences expressed by major institutions in a new survey, EDHECinfra is releasing a taxonomy of global indices and sub-indices to structure the infrastructure asset class.

In its effort to create global benchmarks for infrastructure investors, the EDHEC Infrastructure Institute (EDHECinfra) recently surveyed asset owners and managers about how these indices should be structured to best address their asset allocation and performance monitoring needs.

In the largest survey of its kind over 200 major infrastructure investors, including asset owners representing more than 10% of global AUM in 2017 (US$10 trillion), revealed their preferences for the segmentation of unlisted infrastructure. This framework establishes an industry standard for unlisted infrastructure benchmarks.

Over half of respondents to the survey were focused solely on infrastructure equity investment, while a third seek both infrastructure equity and debt.

Investors mostly chose to reject the geographic and sectoral categories typically used for capital markets benchmarks, preferring instead to understand their infrastructure exposures in terms of the level of economic development and investability of national markets. They also recognised the fundamental difference between infrastructure project financing and infrastructure ‘corporates’.

Focusing on individual sectors was not considered a structuring aspect of the asset class, instead, most asset owners asked for ‘broad sector’ indices and sub-indices using `business model’ filters rather than industrial ones.

In response to these preferences, EDHECinfra reveals the industry standard for unlisted infrastructure benchmarks, outlining a taxonomy of indices and sub-indices that can create the most useful framework of reference for the asset class. Two universes (debt and equity) are split either between broad areas of economic development or by types of corporate structure, leading to eight broad market indices that will provide a global view of the infrastructure asset class.

This taxonomy also includes a limited number of sub-indices for the purpose of performance monitoring. These thematic sub-indices (by business risk, sector groups, credit risk) represent specific risk profiles to track the risk-adjusted performance of most specialised managers or dedicated accounts focused on a sub-segment of the infrastructure market.

Key findings:

Almost 70% of respondents said economic development and infrastructure investability were the most relevant geographic segmentations for private infrastructure.

90% of respondents said it was relevant or highly relevant to segment infrastructure investments by business model (contracted, regulated, merchant).

Investor’s views were relatively balanced on the segmentation of infrastructure by corporate structure.
– 37% of respondents favour project finance specific benchmarks
– 42% would rather use benchmarks with infrastructure projects and infrastructure corporates
– 20% would prefer an infrastructure corporates only index

Infrastructure debt investors were almost unanimous (95%) in the need to bucket infrastructure debt by credit risk and maturity, highlighting the need to integrate private infrastructure debt in broader fixed income strategies.